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Effects of the Minimum Wage on Small Firms in China: Spillover Effects from Large Firms

Author

Listed:
  • Qiaoyi Chen

    (China Center for Economic Studies Fudan University Shanghai, 200433, China)

  • Zhao Chen

    (China Center for Economic Studies Fudan University Shanghai, 200433, China)

  • Lin Guan

    (School of Economics and Management Hefei Normal University Anhui, 230601, China)

Abstract

This study investigates how minimum wage affects small firms through spillover effects from large firms. Using firm-level panel data from Anhui Province in China, we find that after a minimum wage increase, small firms will reduce workers' wages and create jobs due to the inflow of displaced workers from large firms. This spillover effect is larger for micro firms and private firms, where minimum wage compliance tends to be lower. We also find that high-tech small firms are more affected than low-tech ones because of their greater demand for skilled labor. Our findings not only highlight the unintended consequences of minimum wage on small firms in China, but also help to explain the ambiguous employment effects of minimum wage on the covered sector in developing countries.

Suggested Citation

  • Qiaoyi Chen & Zhao Chen & Lin Guan, 2022. "Effects of the Minimum Wage on Small Firms in China: Spillover Effects from Large Firms," Asian Economic Papers, MIT Press, vol. 21(1), pages 47-63, Winter/Sp.
    • Handle: RePEc:tpr:asiaec:v:21:y:2022:i:1:p:47-63
    DOI: 10.1162/asep_a_00844
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    Cited by:

    1. Chih-Hai Yang, 2023. "R&D responses to labor cost shock in China: does firm size matter?," Small Business Economics, Springer, vol. 61(4), pages 1773-1793, December.

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